Publications
Annual Report
Chairman's Report
For the year covered by this annual report, Neville Young was chairman of EQC. He had been a Board member or chairman since 1997, a term which has resulted in his stamp being placed on most aspects of the organisation’s business. His positive influence will last for many years.
In his last annual report he opened a debate about the future direction of EQC. He posed a number of questions about:
The limits on EQC’s cover compared with the range of natural perils which can, and do, affect New Zealand’s householders; and
- The EQC insurance model in the context of the public’s expectations of the role and responsibilities of governments in the event of a major natural disaster.
None of those questions will be answered easily or quickly. If that were possible it would have been done already. But events in the last year have reinforced the need for this discussion to continue:
- Of the $12.2 million of claims made upon the Natural Disaster Fund in 2005/06, $11.1 million were the result of landslip and flood, and around $1.1 million the result of earthquake.
- The continuing pattern of housing settlement in New Zealand, in coastal areas particularly, can increase the risk of loss through either landslip or tsunami;
- The growth in land values and building costs has increased the total liability which EQC might incur in a major natural disaster;
- The revamp of New Zealand’s civil defence infrastructure reflects the level of Government and public concern about the ability of communities to respond to a major natural disaster. EQC is a major component of New Zealand’s capacity to recover from such an event.
Taken individually these are neither particularly significant nor unmanageable in the context of EQC’s day-to-day business. But taken together they reinforce two points made by my predecessor:
- That the raison d’etre of EQC is to respond to a major natural disaster in New Zealand; and
- The public and Government expectations of that response, and the capacity of EQC to meet those expectations, need to be well aligned.
Due in large part to his efforts, EQC is now a sound platform on which refinement and adaptation, to respond to the expectations and conditions of the next decade, can take place.
“New Zealand is now in a position where EQC could meet its liabilities in the event of, say, a major earthquake centred on one of our largest cities. However, this might well exhaust the Natural Disaster Fund.”
In this context, New Zealand and the Earthquake Commission have also benefited from the good fortune that, in the 60 and more years since the establishment of EQC, and its predecessor the Earthquake and War Damage Commission, there has been no major natural disaster in close proximity to a large population centre. As a result, the Natural Disaster Fund has been able to grow to its present size of $5.4 billion. A better balanced and diversified investment policy, and a reinsurance programme based on a careful assessment of risk to the Fund, serve to protect this unique national asset.
New Zealand is now in a position where EQC could meet its liabilities in the event of, say, a major earthquake centred on one of our largest cities. However, this might well exhaust the Natural Disaster Fund. There is a real possibility that a second earthquake (or other event) could occur before the Fund has adequately recovered. The acceptance and management of such a risk is an important public policy issue for New Zealand.
There are other policy issues before EQC. For example, the diversification of our financial assets from solely New Zealand Government securities into overseas equities, has brought with it a responsibility not only to maximise the return to the Crown, but also to ensure that our investments do not prejudice New Zealand’s reputation as a responsible member of the world community. Ensuring we give effect to this obligation is an ongoing priority.
In December 2005 EQC Board members learned of the death of their valued colleague Jeremy Dwyer. His wisdom and commitment to the goals of EQC continue to be missed.
With the passing of Jeremy Dwyer, and the retirement of Neville Young and Taari Nicholas, a different Board will be taking the organisation forward. I am privileged to take over the chair of EQC with the organisation in such good shape.
Finally, I acknowledge and thank the general manager, David Middleton, and the staff of EQC for the roles they have played in bringing EQC through another successful year. More remains to be done. I am confident in the ability and determination of the staff and Board of EQC to get it done successfully, building on the good work of 2005/06.
Michael Wintringham
Chairman
September 2006